When a policy maker or an administrator decides on how many and
which of a number of proposed policy measures to implement an
important piece of information is whether the effort is “worthwhile”.
The precise meaning of the word “worthwhile” will depend on the
context. In some cases, the question of whether a policy measure is
worthwhile will be decided on a purely qualitative basis given the
results of the policy measure. In other – and perhaps most – cases
some sort of money evaluation will be attached to the results, and a
total effect in money terms will be used to evaluate the results. This
manual is concerned with the latter case.
Given the large degree of competition between various projects for
public funds, a compelling case for a specific project can be made if a
well carried out cost-benefit-analysis shows a resulting surplus. While
this criterion is obviously not the only one used, it could be an
important factor when preparing policy makers to make decisions
about a specific project.
The basic idea behind cost-benefit-analysis is simple: calculate all
benefits and all the costs associated with a specific effort, subtract the
costs from the benefits while carefully addressing the time profile, and
use the resulting number as an indicator for the economic profitability
of the project. If the result is positive, the project produces an
economic surplus, and if it is negative the project leads to an
economic loss.

Files in this item: 1

This paper shows how improved health conditions aect fertility decisions and economic growth. Survival rates for children and adults are incorporated into an overlapping generations model featuring endogenous fertility and altruism from workers towards their retired parents. The main nding is that a simultaneous increase in child and adult survival decreases fertility and increases savings and productivity growth. The analysis illustrates the key role of health in the demographic transition.

We propose a complementary approach to analyze the impact of immigration on the wages of native workers. Using linked employer-employee data from Denmark for a relatively long time period (1993-2004), we study the consequences of an increased use of immigrants at the most disaggregate level – the workplace. We find that an increase in the share of workers from less developed countries at the workplace has a signifi cantly negative effect on the wages of natives – also when controlling for potential endogeneity using both fi xed effects and IV. The use of immigrants from more developed countries also appears to be correlated with wages. However, these correlations disappear when controlling for unobserved fi rm and worker characteristics and are thus likely to reflect selection rather than a causal effect of these immigrants. Finally, we find a positive impact on the wages of native workers from having Eastern European co-workers.

Files in this item: 1

This paper identifies several distortions which create barriers to entrepreneurship. First, in addition to the innate entry cost, there are entry costs caused by regulation. Second, union wage policies raise the opportunity cost of entrepreneurship. Third, inefficiencies in the transmission of tacit knowledge between generations of entrepreneurs can arise: with access to within-family ownership transfer, the outside market for entrepreneurship operates as a lemon’s market. This problem becomes relevant when the economic life of a business idea exceeds the active life of an entrepreneur. barriers to entrepreneurship, tacit knowledge, occupational choice

This paper investigates the impact of globalization, in the sense of increasing international trade, on the demand for skills in Danish manufacturing companies. The study is based on a unique data set that enables us to develop rich measures of international outsourcing and import penetration. Moreover, the data also allows several strategies to strengthen the causal interpretation of our results. The main finding of the analysis is that it is of crucial importance to distinguish imports - both in the form of outsourcing and overall imports - by country-of-origin. We find that international trade with low-wage countries leads to skill-upgrading. This is especially pronounced for import penetration with a ceteris paribus contribution of around fifty percent to skill-upgrading. Moreover, we find that import penetration in goods originating from high-wage countries lead to skill-downgrading. This latter result suggests that Danish manufacturing has comparative advantage in skill intensive production when compared to low-wage countries, but in unskill-intensive production when compared to high-wage countries. Skill-upgrading, Low-wage country outsourcing, Low-wage country import penetration, Comparative advantage

Files in this item: 1

Offshoring firms are found to pay higher average wages than purely domestic firms. We provide a unifying empirical approach by capturing the different channels through which offshoring may explain this wage difference: (i) due to change in the composition of workers (skill composition effect) (ii) because all existing workers get higher pay (rent sharing effect). Using Danish worker-firm data we explain how much each channel contributes to higher wages. To estimate the causal effect of offshoring on wages we use China’s accession to the WTO in December 2001 - and the soon after boom in Chinese exports - as positive exogenous shocks to the incentive to offshore to China. Both skill composition and rent sharing effects are found to be important in explaining the resultant gain in wages. We also show that the firm’s timing in the offshoring process determines the relative importance of a channel. For firms offshoring to China in 2002 but not in 1999, only rent sharing explains the gain in wages. For firms offshoring to China both before and after China’s WTO accession the wage increase is explained mostly by the skill composition effect. Moreover, these patterns are not discernible from the measures of skill composition and rent sharing available in typical firm level datasets - like ratio of educated to uneducated workers and sales per employee.

Files in this item: 1

We consider the effects of income redistribution when people can migrate from one country to another, and when land within
each country is heterogeneous. Taxes related to income can then affect property values, and can induce migration, which further affects property values. We show that under these conditions a utilitarian government should never equalize after-tax incomes. If migration is impossible, it may even transfer income from the poor to the rich, reducing the rents earned by absentee landlords. The redistributive tax on the rich may be higher or lower when the rich can migrate than when they cannot. A Rawlsian government in the absence of mobility will equalize after-tax incomes. Under mobility, Rawlsian governments cut their taxes if and only if the relative pre-tax income of the poor is sufficiently low.

Files in this item: 1

The present paper studies the growth and efficiency consequences of tax-favored individual retirement accounts in a general equilibrium overlapping generations model with idiosyncratic lifespan and labor income uncertainty. We distinguish between economies with rational and with hyperbolic consumers and compare the consequences of mandatory and voluntary retirement plans with and without annuitized benefits. While a full taxation of capital income yields the highest efficiency gains in the rational consumer model, annuitization and hyperbolic discounting substantially improve the economic efficiency of IRAs. We also show that annuitization alters the intergenerational welfare consequences of the reform substantially, since it reduces accidental bequests. Finally, even if mandatory saving programs have a clear cost advantage, they are only recommendable if consumers are myopic. individual retirement accounts, annuities, stochastic general equilibrium, hyperbolic consumers

We measure the quantitative importance of labor mobility as a vehicle for the transmission of knowledge and skills across firms. For this purpose we create a unique data set that matches all applications of Danish firms at the European Patent Office to linked employer-employee register data for the years 1999-2002. The Danish workforce is split into "R&D workers", who hold a bachelor's or a master's degree in a technical field, and "non-R&D workers". We find that mobile R&D workers ("R&D joiners"') contribute more to patenting activity than immobile R&D workers. Furthermore, R&D workers who have previously been employed by a patenting firm ("patent exposed workers") have a larger effect on patenting activity than R&D workers without this experience. Patent exposed R&D joiners constitute the most productive group of workers: for firms that patented prior to 1999, one additional worker of this type relates to an increase in the number of patent applications of the new employer by 0.0646. This corresponds to a 14 percent increase in the mean number of yearly patent applications. We also find that mobility of R&D workers increases the joint patenting activity of the donor and recipient firms, confirming the importance of labor mobility for innovation in the economy.

Files in this item: 1

We study a situation in which an R&D department promotes the introduction of an innovation, which results in costly re-adjustments for production workers. In response, the production department tries to resist change by improving the existing technology. We show that firms balancing the strengths of the two departments perform better. This principle is employed to derive several implications concerning the hiring of talents, monetary incentives, and technology investment policies. As a negative effect, resistance to change might distort the R&D department’s effort away from radical innovations. The firm can solve this problem by implementing the so-called ”skunk works model” of innovation where the R&D department is isolated from the rest of the organization. Resistance to change, innovation, skunk works model, contest.

This paper uses a register dataset for the entire Danish population to examine the effect of early
motherhood on labour market measures, health care measures and family measures for the mothers
and their offspring. The dataset is divided into three groups according to the age of the woman at
the time of her first child delivery. Using standard cross-sectional econometric techniques the
results show that very young mothers (aged 16-21) have significantly lower employment rates,
higher propensity to receive welfare benefits and a lower wage income. Children of very young
mothers have a higher family replacement rate, more services received from General Practitioners
and a higher propensity to receive ADHD-medications. The majority of the effects reported are also
significantly greater for mothers who were aged 22-25 at the birth of their first child compared to
older mothers.

Economic theory predicts that military conscription is associated with static inefficiencies as well as with dynamic distortions of the accumulation of human and physical capital. Relative to an economy with an allvolunteer force, output levels and growth rates should be lower in countries that rely on a military draft to recruit their army personnel. For OECD countries, we show that military conscription indeed has a statistically significantly negative impact on economic performance.

Files in this item: 1

We evaluate the effects of international outsourcing and labor taxation on wage formation and equilibrium unemployment in dual labor markets. Outsourcing promotes wage dispersion between the high-skilled and low-skilled workers. Higher domestic low-skilled wage tax, higher payroll tax and lower wage tax exemption increase optimal outsourcing. Outsourcing will reduce equilibrium unemployment of low-skilled workers both in the presence and absence of labor taxation. In the presence of outsourcing, wage tax, tax exemption and payroll tax have an ambiguous effect on equilibrium unemployment. Increasing the degree of tax progression decreases the wage rate and increases the demand of low-skilled workers.

Firms in the European countries today have the possibility of choosing from a range of control enhancing mechanisms giving the controlling owners an amount of influence which is disproportional to their share of cash flow. The list of control enhancing mechanisms includes dual class shares, pyramidal ownership structures and several others. The justification for these control enhancing mechanisms is currently the subject of much debate within the European Union. The opposing positions in the debate can be stated briefly as i) the control enhancing mechanisms are an impediment to takeovers and should therefore be removed to improve the market for corporate control. ii) Removing the control enhancing mechanisms reduces the contractual freedom to decide desirable ownership structures. This report investigates whether ownership structures affect firm performance. To do so this study provides a description of the current ownership structures in European countries and the economic outcomes for firms using different ownership structures. The results are presented in the tables below.

Files in this item: 1

We study the optimal regulation of banking groups ("banks”), taking both minimum capital requirements and legal structure into account. A bank can set up either as one legal unit facing limited liability jointly (branch structure) or as a bank holding company with subsidiaries (subsidiary structure). Banks are exposed to risk from their unobservable asset choices and to exogenous risk from their environment. We show that banks with branches are more prudent in normal times than banks with subsidiaries, but are also less prudent when problems arise. A regulator that observes banks’ exogenous risk should optimally determine both capital requirements and legal structure. If the exogenous risk is private information to banks, it can be optimal to screen banks according to risk by setting capital requirements appropriately, and letting banks choose their legal structure.